Why Marcus Lemonis walked away from investing in this company bringing in $1 million a year

The surprising reason why Marcus Lemonis walked away from investing in a...

As the CEO of the multi-billion dollar company Camping World, self-made millionaire Marcus Lemonis has established himself as a big player in the $35 billion American sports apparel market.

On this week's episode of CNBC's "The Profit," Lemonis sees potential in an Illinois-based athletic apparel company called Rayjus. However, he's forced to walk away from making a deal when he learns one of Rayjus' co-owners, Ray Odom, has a side job as a controversial local radio personality.

Much to Lemonis' astonishment, Odom says the character he portrays on the radio is "a sexist, egotistical, racist pig," but clarifies he's still "a dad in real life" who cares about his family and employees.

Justin Romines and Odom started Rayjus as equal partners in 2010 with the goal to bring professional-looking sports shirts to amateur fishermen. Despite having little experience in the apparel industry, Romines and Odom set up their customizable garments business and found success.

How a single mom of a 13-year-old CEO learned to be more confident—and scored a meeting with Amazon

Rayjus quickly began making over $1 million in sales a year thanks to a niche group of fishing fans they began serving. However, because fishing is a seasonal sport, they faced unpredictable revenue.

Still, Lemonis found the Under Armour-like dry fit shirts Rayjus produced "really cool" and thought they could potentially sell well at his outdoor goods stores. These custom shirts make up about 80 percent of the business and earn the business about $1 million in revenue, according to the co-owners.

But while the product and money-making potential were there, Lemonis quickly uncovered key issues with how the business was being run.

Here are two lessons you can learn from Lemonis' experience.

Value your team members or office morale will suffer

When Lemonis visited the Rayjus facility, he found that it was "quite literally a sweatshop," with the women sewing and creating the garments in an unairconditioned factory. Meanwhile, the rest of the men worked in air-conditioned cubicles in an adjacent part of the building. The employees also told Lemonis that there were days when the factory would be working at full speed while the rest of the men went out fishing.

"Maybe one of the reasons that the business is struggling is because these guys are only putting in four days of effort," Lemonis said.

Lemonis noted that aside from the rough physical conditions Rayjus employees faced, the owners were running the business like a "house of cards." As a result of poor business margins, the company had an inadequate cash flow, causing them to fall behind not only on their taxes, but also with paying their employees on time.

To help compensate, Odom explained to Lemonis that he works two days a week as a local radio disc jockey.

Make sure you know who you're working with

Odom noted that despite being a "dad in real life" and a guy who cares about his family, his character on the radio was "a sexist, egotistical, racist pig."

"I knew Ray had a side job and I thought it may be a distraction, but I didn't realize that the focus of it was to demonize minorities and degrade women," Lemonis said.

Once Lemonis learned Odom made a living by telling people he's a sexist and a racist, he said he felt "uncomfortable really fast."

"I am a big believer that you are who you do business with," Lemonis told Romines and Odom. "And so the fact that you think I would do business with you because you do that, whether it's your personality or not, I just can't."

After walking through the facilities, meeting the Rayjus employees and learning more about the business' day-to-day operations, Lemonis couldn't bring himself to continue helping Rayjus.

Marcus Lemonis gives Tumbleweed Tiny House CEO leadership advice to help pull this company out of million-dollar debt

"I can get over business problems — fix the process, make it safe, put the air condition in, figure out how to pay the taxes, create a better work environment, sell more, diversify the product — I can fix those," Lemonis said. "I can't fix you for being a racist and a sexist, but here's the good news: I won't have to fix it because I'm not going to be here."

Like this story? Like CNBC Make It on Facebook.

Don't miss:

Marcus Lemonis: In business, your employees have to come first
make it

Stay in the loop

Sign Up

About Us

Learn More

Follow Us